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Opinion of the Court.

vention of Jenkins, or, at least, as containing all the essential elements of the faucets manufactured by the defendant.

The court below held that this evidence was competent to show the state of the art at the time Jenkins's patent was granted, and might be used for the purpose of limiting its construction, but not for the purpose of showing such a previous knowledge and use of the invention as would affect the validity of the patent. But since the decision of this case in the Circuit Court, we have held, in Loom Company v. Higgins, 105 U. S. 580, that under a general denial of the patentee's priority of invention, evidence of prior knowledge and use taken without objection is competent at the final hearing on the question of the validity of the patent. And, since in the present case there was neither an exception to the answer nor any objection to the evidence, except as to a single faucet marked Defendant's Exhibit No. 2 (which may be laid out of the case), we think that the remaining evidence of prior knowledge and use might well have been considered by the court on the question of priority as affecting the validity of the patent.

Viewing the evidence, however, with the court below, only as demonstrative of the state of the art, and therefore competent to limit the construction of the patent to the precise form of parts and mechanism described and claimed therein, it was amply sufficient to sustain the decree.

Self-closing cocks and faucets were no new thing in June, 1865, when the patent of Jenkins was issued. Bartholomew had manufactured and sold them for a period of ten or fifteen years before that time. As early as 1854, he had made and sold faucets in which the valve was kept on its seat by the pressure of a spiral spring, and when a flow of water was desired, the valve was lifted from its seat against the force of the spring by means of a stem, operated by a collar or cross-piece moving around on a fixed circular inclined plane or cam, having the same effect as a screw; when the handle, or thumb-piece, attached to the collar was liberated or let go, the spiral spring would force the valve back to its seat, and the flow of water would be stopped.

The improvement of Jenkins (or what was patented to him

Opinion of the Court.

as such), as we have seen, was the employment of a screw on the upper part of the valve stem, in lieu of the circular cam or inclined plane, to force the valve from its seat. This valve stem, called by him the screw follower, forced the valve not only against the pressure of the spring, but against that of the water, both of which were exerted in carrying the valve back to its seat as soon as the force operating upon the screw was removed. Now, in view of the fact that an inclined plane or cam was previously used by Bartholomew as a means of producing the same result upon the valve stem as that produced by the screw made upon it by Jenkins, it is clear that the claim of the latter in his patent, of "the screw follower H in combination with the valve of a self-closing faucet, substantially as set forth," must be limited to the precise form of mechanism designated. It must be limited to a screw follower, and cannot be construed to embrace a cam arrangement for moving the valve. Whether it is also to be limited to a valve which moves to its seat concurrently with, and not against, the pressure of the water, it is not necessary to determine. The limitation to the screw is sufficient to determine this case. In the faucet manufactured by the defendant the screw is not used, but the old cam device is employed for lifting the valve from its seat. It is true that the cam, instead of being placed at the top of the stem, on the outside of the faucet, as was done by Bartholomew, is placed at its lower extremity, by the valve, inside of the faucet; but this does not change the principle of its construction or operation. We concur with the court below in holding that, construed as the patent of Jenkins must be in view of the state of the art at the time of its issue, the defendant has not infringed it, and the bill of complaint was properly dismissed.

The decree of the Circuit Court dismissing the bill is, therefore, affirmed.

Opinion of the Court.

SIOUX CITY & PACIFIC RAILROAD COMPANY v. UNITED STATES.

IN ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF IOWA.

Submitted December 18th, 1883.-Decided January 21st, 1884.

Internal Revenue-Land Grant Railroads-Statutes-Taxation.

Under the act of July 1st, 1862, 12 Stat. 492-3, and the acts in addition to it, plaintiff in error received from defendant in error subsidy bonds, which were made by statute a lien upon its road: Held, That, in a suit to collect an internal revenue tax on the undivided net earnings of the road, carried to a fund or to construction account, the plaintiff was not entitled to have the interest upon these bonds deducted from its net earnings before settling the amount to be subject to the tax ; but that the amount of that interest, if earned and carried to a fund or charged to construction, was taxable.

Suit to recover an internal revenue tax on the undivided net earnings of the plaintiff's railroad. Defence that the company was not subject to the tax to the extent of the interest on the subsidy bonds issued to it under the act of July 1st, 1862, 12 Stat. 489, ch. 120.

Mr. E. S. Bailey for plaintiff in error.

Mr. Solicitor-General for defendant in error.

MR. JUSTICE BRADLEY delivered the opinion of the court. This was an action brought by the United States against the Sioux City & Pacific Railroad Company to recover certain arrears of taxes alleged to have accrued from November, 1868, to September, 1871, inclusive. The first count of the declaration states that for the eleven months ending September 30th, 1868, the gross receipts of the company from passengers were $51,786.12, on which it became liable to pay a tax of 21 per cent., or $1,294.55; and that the undivided net earnings of the company for the same period, which were carried to the construction fund or account, were $43,889.39, on which the company became liable to pay a tax of 5 per cent., amounting to $2,194.41; that the

Opinion of the Court.

company paid the tax on gross receipts, but refused to pay the tax on net earnings carried to construction account. Three other counts for the following years showed an aggregate arrearage (including that stated in the first count) of over $11,000. There were four other counts for penalties, to which the statute of limitations was pleaded, and which are not the subject of controversy. Issue being taken on the first four counts, the parties entered into a stipulation for the purpose of showing the precise matter in dispute.

This stipulation, after stating the title of the cause, was as follows:

"The parties to the above-entitled action hereby stipulate to waive a jury on the trial thereof. For the purpose of the trial of this action, the following facts are admitted:

"1. All the material facts alleged in the first count of the petition are true, subject to the following statement and exception, to wit: The amount of interest accrued during the period mentioned in said count on the subsidy bonds (so-called) issued by the United States to said defendant in pursuance of the act of Congress entitled 'An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same for postal, military, and other purposes,' approved July first, 1862, and the amendments thereto, was the sum of thirty-six thousand dollars ($36,000). If the said sum of $36,000 is subject in law to be deducted from the gross receipts of the defendant in order to ascertain the net earnings thereof for the period named, then the amount of the net earnings liable to a tax of five per cent. is the sum of seven thousand eight hundred and eighty-eight and dollars ($7,888.39), and the tax on the same is three hundred ninety-four and dollars ($394.41), instead of the sum of $2,194.41, as claimed in said count."

Similar admissions were made with regard to the other counts, and the stipulation concluded as follows:

"If the court is of the opinion that the interest which accrued on the said subsidy bonds for the several periods named is subject to be

Opinion of the Court.

deducted from the gross receipts in order to ascertain the net earnings, then the plaintiff is entitled to recover

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"But if, on the other hand, the court should be of the opinion that the said interest accrued on said bonds is not subject to be deducted, the plaintiff is entitled to receive

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Upon this state of facts, the court gave judgment for the latter sum, and the company has brought this writ of error to review said judgment.

We think that the judgment was right. The accruing interest on the subsidy bonds loaned by the government to the company, is payable by the company at a future day, to wit, at the maturity of the bonds; and if a sufficient amount of the company's annual net earnings is laid aside (as it should be) to meet that interest when it shall become due, the amount so laid aside would be directly within the scope of the Internal Revenue Act, as it stood when the net earnings in question arose. The 122d section of that act, as amended in 1866, imposed a five per cent. tax, not only on all payments of interest due on bonds and on all dividends declared by any railroad or canal company, but also on "all profits of such company carried to the account of any fund, or used for construction." The profits here referred to are the profits arising from the operation of the road or canal, without deduction of interest paid to its bondholders or dividends paid to its stockholders, and correspond to the phrase "net earnings" used in the stipulation of the parties in this case. Union Pacific Railroad Company v. United States, 99 U. S. 402. The expression in

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